According to French president Nicolas Sarkozy, European leaders are about to come up with a secret plan to defend the common currency and stop the debt crisis from spreading by directly attacking financial speculators – a European stabilizing mechanism. Measures will be in place before the markets open on Monday morning, the politicians pledged after signing the Greek aid package Friday night.

“They will soon know once and for all what lies in store for them.”

Nicolas Sarkozy

Leaders from the euro zone countries signed off on a support package for Greece on Friday night and pledged to take steps to stanch a spreading debt crisis before markets opened on Monday morning, The New York Times reports.

During a late-night meeting at European Union headquarters, the leaders described the debt crisis as “systemic,” but President Nicolas Sarkozy of France insisted that the bloc could defend the euro by directly attacking speculators.

Speaking at a news conference, Mr. Sarkozy vowed to “confront speculators mercilessly” and warned them that they would soon “know once and for all what lies in store for them.”

The leaders said they would create a so-called European stabilization mechanism, but Mr. Sarkozy declined to give details of the plan on the basis that doing so could undermine its effectiveness.

He said that all 27 European Union finance ministers would hold an emergency meeting on Sunday afternoon to draft the plan to quell gyrating markets ahead of Monday.

Leaders of the 16 nations that use the euro currency also formally agreed to provide 80 billion euros in a joint package with the International Monetary Fund totaling 110 billion euros, or $140 billion, and said that the first disbursement would be made before Greek payments came due on May 19.

The leaders agreed to steps to improve national balance sheets across the euro area.

“Each one of us is ready, depending on the situation of his country, to take the necessary measures to accelerate consolidation and to ensure the sustainability of public finances,” the leaders said in a statement issued early on Saturday morning.

Quantitative Easing By Force?

Some European officials said Friday that they wanted to find a way to encourage the European central bank’s governing council to agree to more radical measures, like the outright purchase of government bonds of Greece and perhaps other countries, to help address the crisis.

But that would be something certain members of the council would probably resist on the ground that it could compromise the central bank’s independence.

Ahead of the meeting, finance ministers and central bank governors of the Group of 7 — which includes the United States, Britain, Japan and Canada as well as three euro zone members, Germany, France and Italy — held a conference call to address growing concerns that a failure to effectively contain the Greek financial crisis could cause it to spread quickly to other European countries and beyond, roiling world markets.

In addition, President Obama spoke to Chancellor Angela Merkel of Germany on Friday for the third time in four weeks. “We agreed on the importance of a strong policy response by the affected countries and a strong financial response from the international community,” the president said afterward.

Bringing In 007?

As some commentators and financial bloggers already have pointed out; this is now getting ridiculous!

All the political leaders are doing is adding more uncertainty to the market.

How can they expect investors to follow the rules when they don’t know what they are?

Unfortunately, these panic reactions are nothing new in the history of economic crisis.

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